Trading partners are coming round to Millennium approach

Date: 15/10/1998

It is in the interests of emerging market economies to support the EU's call for a new round of global trade negotiations, the European Commission's vice-president tells Simon Taylor

AS EACH day brings reports of financial meltdown in a new part of the world, advocates of further world trade liberalisation face a stiff challenge in keeping up the pace of market opening.

Trade Commissioner Sir Leon Brittan is aware that a great deal of work needs to be done to convince sceptics of the need for a new round of global negotiations under the auspices of the World Trade Organisation. He nevertheless claims there is already a surprising amount of support for his call for a new multilateral round.

Ministers from the WTO's 132 member countries need to agree on the agenda for the next round of negotiations - if there is to be one - by December 1999.

They have already decided to continue negotiations on reducing agricultural tariffs and support, plus new rules on trade in services, but EU trade ministers are calling for a wider range of sectors to be included in the Millennium Round talks.

This would ensure that any concessions the EU had to make in the sensitive area of agriculture could be offset by gains in sectors where the Union is more internationally competitive, such as financial services or telecoms.

At the first of a series of meetings held at the WTO's headquarters in Geneva to discuss the agenda for future talks, the EU set out the areas it would like to see covered in the next negotiations.

These included new multilateral rules on competition and investment, paying greater attention to combining free trade with sustainable development, establishing a multilateral framework for government procurement, and agreeing more comprehensive rules on trade in services and intellectual property protection.

Despite the devastating effects of capital movements on the emerging market economies in Asia, Russia and South America, Brittan insists that the greater market openness the WTO strives for is still required.

"I am absolutely convinced that the lessons of the crisis are that a new round is needed more than ever," says the Commission vice-president.

He maintains that the problem has not been excessive liberalisation or a too-rapid introduction of market economies but rather their incomplete introduction, stressing the need for greater supervision of financial services and greater transparency.

"The conclusion we have drawn is not to end the process of liberalisation which has led countries to unprecedented growth in incomes, but to ensure that in moving to a market economy, the regulatory aspects are in place as well," he explains.

Taking the example of Korea, which Brittan visited at the beginning of this week, the Commissioner argues that greater transparency would help to prevent some of the bad investment decisions which Asian countries are now struggling to deal with.

If there were more of this, he argues, "it would not be possible for Korea to lean on banks to make unviable loans for investment in shipbuilding which then can't make a profit because of overcapacity on the world market".

But Brittan acknowledges that the Asian financial crisis has made it more difficult to convince newly industrialised and developing countries to start a new multilateral round in 1999.

"Those who have been reluctant to favour comprehensive multilateral liberalisation have been reinforced by the current economic crisis," he admits, conceding that a lot of work needs to be done to convince countries like India, Pakistan, Egypt and Malaysia to join the call for fresh talks.

At a WTO meeting in September, India, which is widely seen as the spokesman of the developing world in international trade talks, complained that Uruguay Round signatories were failing in practice to meet the commitments they had made.

Brittan acknowledges that winning support for a new round depends on ensuring that member countries have implemented their existing commitments in full, so that developing countries can see the benefits of global trade liberalisation. "We are ready to do whatever is possible to help them to meet any outstanding problems on implementation they have," he promises.

But he rejects suggestions that rich nations are trying to rush developing countries into a new round before they have had time to digest the effects of the last deal.

According to the Commissioner, the next round, which will not start in earnest until 2000, will take at least three years to complete under the most optimistic scenario, plus the time allowed for a new implementation period. So the impact of the agreement will not be felt until the middle of the next decade.

At the other end of the scale, Brittan has to convince the US to support his call for a new round, not least because Washington fears that cross-sectoral deals could slow up the whole process of delivering real progress in liberalisation.

Echoing the words of his political mentor, former British Prime Minister Margaret Thatcher, Brittan maintains there is "no alternative" to the Millennium Round approach. "We made significant progress with the piecemeal approach, for example, on airlines, telecoms, financial services and the Information Technology Agreement, but that has run its course," he says.

Brittan acknowledges American fears that the next round could take as long as the seven years needed to conclude the Uruguay accord, and suggests that participants should agree in advance to keep the talks short. He also believes that it might be possible to find a system for realising the 'first fruits' of trade negotiations before the entire round is concluded.

In any case, Brittan maintains that the US is warmer towards the idea of a multi-sectoral approach than some reports have suggested, claiming there has been "a notable evolution" in Washington's position.

The Commissioner believes that the US' failure so far to endorse new discussions stems from the difficulties President Bill Clinton's administration faces in getting full-scale authority from Congress to negotiate a multi-sectoral deal. "You don't need fast-track authority to open a round but you do need it to close one," he points out.

Brittan argues that there have been cases in the past where the US has sought fast-track authority after starting negotiations, implying that Washington would come round to a multi-sectoral approach once Congress had given Clinton the mandate he was seeking.

Nevertheless, the president's ability to secure such a mandate appears to be in serious doubt in the wake of the Lewinsky affair. "I regard what they have done as as much as we could reasonably expect at this stage," says Brittan.

The Commissioner is also pleased with the wide-ranging support his approach has attracted from other WTO members so far, claiming that Argentina, Brazil, Uruguay, Mexico and even Japan have all backed the EU's call for a multilateral round.

The former Tory cabinet minister also stresses the merits of WTO membership for China, currently rethinking its attitude to meeting the organisation's rules in the face of the Asian crisis.

Brittan, who will visit China at the end of this month with Commission President Jacques Santer and Economics Commissioner Yves-Thibault de Silguy, believes Beijing is mistaken in thinking that recent events should slow down its efforts to join the WTO.

"The process of liberalisation is not only consistent with China's reform programme but will enhance it, especially the infusion of foreign capital and financial institutions," he insists, although he concedes that the Chinese do not share this view.

Asked if he believes that Beijing might succumb to the temptation to gain an advantage in Asia's saturated export markets by devaluing its currency, Brittan says he has been given assurances "at the highest political level" that China will not devalue the renminbi yuan in the short term, and stresses that such a move would not be in its interest as this could trigger a wave of competitive devaluations.

To encourage crisis-hit Asian countries to pursue the path of reform, Brittan repeats his pledge that the EU will accept rising imports from the region provided they meet their reform commitments.

This illustrates a common theme in his argument for greater liberalisation in a framework of common rules.

He is convinced that if countries sign up to international standards on transparency and openness, wealthy nations such as those in the EU will continue to open their markets to the exports which less developed countries rely on to pay their way in the world. But drawing back into protectionism would only offer economic isolation and a harmful spiral of shrinking trade in which everybody would be a loser.

Major feature. Interview with EU Commissioner Brittan.